The US dollar is exhibiting signs of some strength in early trading on Wednesday, holding on to minor gains from the previous session after the release of the ISM manufacturing PMI report raised hopes for the Fed to reconsider the extended dovish outlook. At the time of writing, the US dollar index DXY is trading around 90.13.

The dollar index has recovered from the decline under the 90 level, but is still hovering close to a multi-month low, as traders remain concerned about Fed officials’ insistence on maintaining monetary easing measures even as the US economy shows signs of rapid recovery. The weakness in the greenback has driven the Canadian dollar to a six-year high, which is also enjoying support from rising crude oil prices.

Analysts have mixed expectations towards the US dollar – while some expect the recent positive economic data releases to convince the Fed to step in sooner than planned with tapering asset purchases, others seem content to ‘wait and watch’ as the central bank officials maintain for inflationary pressures to dissipate. Fed’s policymakers have repeatedly played down worries of inflation overheating, stating that price rise could be temporary.

With uncertainty on Fed’s position rising, investors are now turning their focus towards the moves in other major peers, especially the Sterling and the Chinese yuan. Both currencies have strengthened to multi-year highs and could dictate future movement in the reserve currency as they are sensitive to market sentiment which also impacts its safe haven status.